Online Shopping Growth: The One Sure Thing This Holiday Season

September retail sales released earlier this week didn’t cause much of a stir, as the gains were in-line with economists’ forecasts.

One thing that stood out in the report[1], though, was the fact that the general merchandise category posted a meager 0.6% year-over-year gain, while sales at department stores actually fell an ugly 6%. Yet non-store retailers (read: online) sizzled up 9% year-over-year.

This trend toward e-commerce is hardly news, of course, but with the ever-important holiday season just around the corner, it’s a perfect reminder that online shopping is set to steal the spotlight once again.

A Blizzard of Question Marks

The shopping period surrounding Christmas is important for retailers, as it accounts for around 40% of annual sales. But it’s also seen as a key gauge of consumer spending as a whole, which accounts for close to 70% of U.S. economic activity.

It’s uncertain how strong consumer spending will be during the final months of the year, as confidence has been shaky in the wake of the government shutdown and countless retailers have been suffering from soft sales in recent months.

Beyond that, though, the line between holiday spending and consumer health may not even be as straight as it seems[2]. Factors like fashion trends, accounting-period quirks, inventory levels and more will affect how individual retailers perform in the final quarter of 2013.

No wonder experts are mixed in their forecasts for the upcoming holiday season[3]. ShopperTrak is calling for tepid year-over-year growth of 2.4%, the National Retail Federation is slightly more optimistic with growth slated for 3.9%, while Deloitte takes the prize with its prediction of growth north of 4%.

Heck, Adrienne Tennant — a retail analyst for Janney Montgomery Scott — noted that deep discounting has become par for the holiday shopping course. As a result, she thinks that a flat season this year would actually be “pretty good.”

But while the upcoming holiday season is full of both headwinds and question marks, analysts across the board agree on one thing: Online sales growth will still be strong.

Double-Digit Forecasts

No matter what source you turn to, expectations for double-digit year-over-year e-commerce growth are standard this holiday season.

Research firm eMarketer, for example, expects e-commerce spending to increase nearly 16%[4] in the fourth quarter. Similarly, Shop.org expects sales in November and December to grow between between 13% and 15%[5] over last year, which would bring to two-month total to over $80 billion.

And remember: Overall holiday sales have some decent forecasts, but also have a low bar to hop over. Online holiday sales, on the other hand, were also hot a year ago. That means this year’s gains are tacking onto big-time improvements in 2012. According to final numbers from the U.S. Department of Commerce, e-commerce sales increased 15.5% during last year’s Q4.

And yet, as Tennant explained in an interview, eye-popping e-commerce growth should still be expected — and it should come regardless of how holiday sales overall shake out.

“We expect the ongoing shift to e-commerce only to get stronger this year and expect that Cyber Monday will be the largest online shopping day historically,” she said. “Year-to-date, trends we have seen are that even during mall-traffic lulls, e-commerce has been the driver of sales and continues its more rapid growth trajectory.”

She also confirmed the fact that — as we saw with September retail sales — the shift is not exclusive to the holiday shopping period. While direct-to-consumer does reach its annual peak around Christmas, it’s still part of a secular trend in the industry won’t change anytime soon.

In the second quarter of this year, for example, e-commerce retail sales[6] made up nearly 6% of overall retail sales. That’s nearly triple the percentage of retail sales attributed to e-commerce a decade ago — and that’s taken place as overall retail sales have also continue chugging higher.

“E-commerce is just going to continue to be a bigger, more profitable and more important part of the a retailer’s overall business,” Tennant summed it up.

And that holds true for this holiday season and beyond.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.

Endnotes:

in the report: http://www.census.gov/retail/marts/www/marts_current.pdf

may not even be as straight as it seems: http://investorplace.com/2013/09/holiday-sales-might-be-weak-but-that-doesnt-mean-consumers-are/#.UnFRVHCsiSo